State and Trends of Carbon Pricing 2017 Washington DC November 2017This report was prepared jointly by the World Bank, Ecofys and Vivid Economics. The World Bank team included Richard Zechter, Alexandre Kossoy, Klaus Oppermann, and Cline Ramstein. The Ecofys team included Long Lam, Nomie Klein, Lindee Wong, Jialiang Zhang, Maurice Quant, Maarten Neelis, and Sam Nierop. The Vivid Economics team included John Ward, Thomas Kansy, Stuart Evans, and Alex Child. State and Trends of Carbon Pricing 2017 Washington DC November 2017 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone 202-473-1000; Internet www.worldbank.org Some rights reserved 1 2 3 4 20 19 18 17 This work is a product of the staff of The World Bank with external contributions. 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All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2625; e-mail pubrightsworldbank.org. ISBN electronic 978-1-4648-1218-7 DOI 10.1596/ 978-1-4648-1218-7 Picture credits title n_eri / ; page 17 marvellousworld / ; page 21 eskaylim / ; page 59 hxdbzxy / Cover and interior design Meike Naumann Visuelle KommunikationReflecting the growing momentum for carbon pricing worldwide, the 2017 edition of the State and Trends of Carbon Pricing targets the wide audience of public and private stakeholders engaged in carbon pricing design and implementation. This report also provides critical for negotiators involved in the implementation of the Paris Agreement, particularly for the meeting of the Conference of the Parties COP 23 to be held in Bonn in November 2017. As in the previous editions, the report provides an up-to-date overview of existing and emerging carbon pricing initiatives around the world, including national and subnational initiatives. Furthermore, it gives an overview of current corporate carbon pricing initiatives. Another key focus of the report is on the importance of an integrated approach to climate finance and climate markets, together with domestic policies. The analysis shows how such an integrated approach can be used to mobilize the scale of low-carbon investments needed to achieve the below 2C temperature target and outlines a transition scenario and the possible role of results- based climate financing to catalyze climate markets. In May 2017, the World Bank launched the Carbon Pricing Dashboard website, adding an interactive dimension to the annual State and Trends of Carbon Pricing reports. This resource provides an up-to-date overview of carbon pricing initiatives and allows users to navigate through the visuals and data of the report. Please visit http//carbonpricingdashboard.worldbank.org/. The task team responsible for this report intends to select new relevant topics to be explored in future editions or as part of the World Bank’s expanded Carbon Pricing Intelligence program. For example, work is currently underway on an analysis of the interaction of carbon taxes and fiscal policy. The report benefited greatly from the valuable contributions and perspectives of our colleagues in the climate and carbon finance community, ensuring the quality and clarity of this report Joaquim Barris, Conor Barry, Nicolette Bartlett, Carter Brandon, Karan Capoor, Marcos Castro Rodrigues, Climatic Change Division of the Ministry of Environment and Sustainable Development of Colombia, David Coney, Hannah Cushing, Angelique dePlaa, Nathan Engle, Eduardo Ferreira, Greenhouse Gas Inventory and Research Center of Korea, Government of Alberta, Phillip Hannam, Kelley Hamrick, Huang Xiaochen, Dirk Heine, Sharlin Hemraj, Junki Kawamura, Thomas Kerr, Lai Han, Lisa Lang, Alan Lee, Paige Leuschner, Liu Ying, Frank Melum, Aya Naito, Norwegian Ministry of Finance, Kiyoshi Okumura, Qian Guoqiang, Ulrika Raab, Isabel Saldarriaga Arango, Rajinder Sahota, Herman Sips, William Space, Thailand Greenhouse Gas Management Organization, Massamba Thioye, Michael Toman, Johannes Trueby, Xiaodong Wang, Tom Witt, and Peter Zapfel. Oversight and guidance on drafting was provided respectively by Alexandre Kossoy for Section 2 on carbon pricing initiatives around the world and Klaus Oppermann for Section 3 on climate finance and climate markets, and by Richard Zechter and Cline Ramstein for the whole report. We also acknowledge the support from the Partnership for Market Readiness for the preparation of this report, and from the Carbon Pricing Leadership Coalition for the preparation of the Carbon Pricing Dashboard.List of abbreviations and acronyms C Degrees Celsius C CAR Clean Air Rule CCER Chinese Certified Emission Reduction CPP Clean Power Plan CDM Clean Development Mechanism CER Certified Emission Reduction Ci-Dev Carbon Initiative for Development CMA Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement CO 2 Carbon dioxide CO 2 e Carbon dioxide equivalent COP Conference of the Parties CORSIA Carbon Offset and Reduction Scheme for International Aviation CP1 First Commitment Period under the Kyoto Protocol E EIB European Investment Bank ERPA Emissions Reduction Purchase Agreement ERU Emission Reduction Unit ETS Emissions Trading System EU European Union EU ETS European Union Emissions Trading System F FSB Financial Stability Board G GCF Green Climate Fund GDP Gross Domestic Product GGIRCA Greenhouse Gas Industrial Reporting and Control Act GHG Greenhouse gas GtCO 2 e Gigaton of carbon dioxide equivalent I ICAO International Civil Aviation Organization IEA International Energy Agency IFC International Finance Corporation IMO International Maritime Organization INDC Intended Nationally Determined Contribution IPCC Intergovernmental Panel on Climate Change ITMO Internationally Transferred Mitigation Outcome J JCM Joint Crediting Mechanism K ktCO 2 e Kiloton of carbon dioxide equivalent 4M MRV Monitoring, Reporting and Verification Mt Megaton MtCO 2 e Megaton of carbon dioxide equivalent N NDC Nationally Determined Contribution NDRC China’s National Development and Re Commission O ODA Official Development Assistance OECD Organisation for Economic Co-operation and Development P PAF Pilot Auction Facility for Methane and Climate Change Mitigation PMR Partnership for Market Readiness ppm Parts per million R RBCF Results-Based Climate Finance REDD Reducing Emissions from Deforestation and Forest Degradation REDD Extends REDD by including sustainable forest management, conservation of forests, and enhancement of carbon sinks RGGI Regional Greenhouse Gas Initiative S SBSTA Subsidiary Body for Scientific and Technological Advice T t Ton note that, unless specified otherwise, ton in this report refers to a metric ton 1,000 kg TCAF Transative Carbon Asset Facility TCFD Task Force on Climate-related Financial Disclosures tce tons of standard coal equivalent tCO 2 Ton of carbon dioxide tCO 2 e Ton of carbon dioxide equivalent U UK United Kingdom UNFCCC United Nations Framework Convention on Climate Change US United States Y y Year 5List of abbreviations and acronyms cutive summary 1. Introduction 4 10 17 2. Existing and emerging carbon pricing initiatives around the world 2.1. Overview, recent developments, and emerging trends 2.1.1 Global overview of carbon pricing initiatives 2.1.2 Recent developments and emerging trends 2.2. International carbon pricing initiatives 2.3. Regional, national, and subnational carbon pricing initiatives 2.4. Internal carbon pricing initiatives 21 22 22 31 36 43 55 Table of contents 63. Climate finance and climate markets toward an integrated approach 3.1. An integrated approach to climate finance and international climate markets 3.1.1 Roles for climate finance 3.1.2 Roles for international climate markets 3.1.3 Combining climate finance and international climate markets 3.2. Results-Based Climate Finance to support the creation of climate markets and transition to an inter- national carbon market 3.2.1 Transitioning from climate finance to climate markets 3.2.2 Defining RBCF 3.2.3 How RBCF can support building climate markets and help the transition to an international carbon market 3.2.4 RBCF and resource mobilization 3.3. Illustration - An integrated approach to accelerating the transition to clean energy 59 62 62 64 64 68 68 70 72 75 77 82 83 8991 91 91 92 93 94 Annex I Conversion rates Annex II Analysis of NDCs Annex IIISummary of Parties’ views on the operationalization of Articles 6.2 and 6.4 of the Paris Agreement Annex IVCost and investment conceptsConceptsIncremental investment requiredGross investment requiredThe economic cost of climate change impacts Glossary 7Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration ETS and carbon tax Regional, national and subnational carbon pricing initiatives share of global annual GHG emissions covered Prices in implemented carbon pricing initiatives Summary map of regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration ETS and carbon tax Regional, national and subnational carbon pricing initiatives share of global annual GHG emissions covered Prices in implemented carbon pricing initiatives Carbon price and emissions coverage of implemented carbon pricing initiatives Carbon price, share of emissions covered and carbon pricing revenues of implemented carbon pricing initiatives Status of NDC submissions Carbon pricing initiatives implemented or scheduled for implementation, with sectoral coverage and GHG emissions covered Internal carbon prices of utilities publicly disclosed to CDP compared to Paris-compatible An integrated policy approach Channels through which RBCF supports prerequisites for climate markets Absolute and relative crediting of CERs in the first commitment period of the Kyoto Protocol CP1 Estimated disbursements from the 12 largest RBCF funds A policy mix consistent with the reduction of coal-fired power generation 12 13 14 26 27 28 29 30 37 44 57 61 72 75 77 78 Figures 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 8Market update of mechanisms under the Kyoto Protocol Key carbon pricing developments in the Canadian provinces and territories Key developments in the Chinese pilot ETSs Currency conversion rates, as of August 1, 2017 Unconditional and conditional targets and intended use of carbon pricing and/or market instruments stated in NDCs Summary of Parties‘ views on the operationalization of Articles 6.2 and 6.4 of the Paris Agreement Carbon pricing in numbers Summary of selected changes in regional, national and subnational carbon pricing initiatives Use of internal carbon pricing by multilateral banks in project uations Elements for integrating climate finance and international climate markets The maturing of technology markets enables a shift to market-based finance A stylized RBCF program to reduce emissions by increasing the uptake of residential solar power systems RBCF to support the development of regional climate markets 40 46 48 82 83 89 25 54 58 65 69 71 80 Tables 1 2 3 4 5 6 Boxes 1 2 3 4 5 6 7 9 Table of contentshere has been continued progress on carbon pricing initiatives over the last year at the regional, national and subnational levels. Despite these important positive steps, further action is necessary for carbon pricing to make a substantial contribution to the Paris Agreement pledge, which aims to keep the global average temperature increase to well below 2C and pursue efforts to hold the increase to 1.5C. The key priorities for action are− Expanding coverage through the development of new initiatives and the broadening of greenhouse gas GHG emissions coverage in existing initiatives;− Deepening impact by raising carbon prices, which will send a stronger price signal, triggering more investments in low-carbon technologies;− Aligning carbon pricing with complementary and enabling policies at the domestic level to ensure coherence with the broader policy framework;− Progressing the guidelines of the Paris Agreement to pave the way towards linking domestic pricing schemes and enabling usage of international market mechanisms; and− Using climate finance